Thompson Proposes Big Boost In State Income Tax

June 13, 1987|By Daniel Egler and Robert Davis.

Gov. James Thompson, his tax proposals foundering in an unreceptive legislature, offered an alternative plan Friday that would substantially increase the state income tax rates while eliminating the proposed new sales tax on services.

The new plan would increase the personal income tax rate to 3.5 percent from 2.5 percent in two steps while increasing the corporate income tax rate to 5.6 percent from 4 percent in two steps.

The first step in the tax increases would be retroactive to Jan. 1 while the second would go into effect Jan. 1, 1988.

If enacted, Thompson`s proposal would raise the state income taxes of both individuals and corporations by 40 percent.

Originally Thompson had proposed increasing the personal income tax rate by only half as much--to 3 from 2.5 percent--while leaving the corporate rate at 4 percent.

Thompson`s new plan would raise $1.5 billion while the old one would have raised $1.6 billion.

Under the new plan, increased revenues from the income tax boosts would be offset by revenues lost by not extending the state`s 5 percent share of the sales tax to personal and business services. Providers of services had lobbied vigorously against imposing sales taxes on such services, which now are untaxed.

Thompson`s latest plan also would change the way new revenues would be distributed.

It would nearly double the amount of new money for elementary and secondary schools, provide $25 million more for mental health services and create a $150 million ``rainy-day fund`` for times of fiscal crisis.

Under the plan, $370 million in new money is earmarked for elementary and secondary education, $170 million more than was contained in his original proposal.

Higher education would get $130 million in new assistance, up from $100 million.

Thompson announced the new tax plan after meeting for the first time this spring with all four leaders of both houses of the legislature.

After the meeting the leaders seemed unconvinced.

Among the four, only Senate President Philip Rock (D., Oak Park)has generally supported the governor`s proposals. And he said Friday that the 1 percent increase in the personal income tax rate was ``unsalable.``

Rock said he would continue to push for a half-percent increase in both the personal and corporate rates.

House Minority Leader Lee Daniels (R., Elmhurst) said chances are

``slim`` for any tax increase this spring. ``It`s on a respirator system,``

he said.

The governor got a more receptive hearing later when he met in Chicago with Mayor Harold Washington.

Washington endorsed the decision to increase the corporate income tax and said that he and Thompson had agreed on the ``parameters`` of the tax package. But Washington added that future meetings will be needed to determine not only the final form of the package, but a revenue-distribution formula that would give Illinois cities, including Chicago, more money.

In outlining his new plan, Thompson said, ``If the people want no tax increases, there will be no tax increases.``

He repeated that he is prepared to severely cut programs and lay off about 3,000 state employees, including 1,500 mental health workers and 1,000 prison employees, without substantial new revenues.

Meanwhile, Senate Republicans announced after the summit meeting that they are developing an alternative plan to cut $502 million in ``frills`` and ``luxuries`` from state spending.

They include eliminating funds for bilingual education, school arts appreciation grants, new ``Build Illinois`` projects and the Department of Public Aid`s general assistance grant program.

Senate Minority Leader James ``Pate`` Philip (R., Wood Dale) said the cuts, would, however, allow $150 million more to be channeled to elementary and secondary schools, $60 million to mental health services, $15 million to child-abuse prevention and $30 million to the state`s prison system.